tv Options Action CNBC April 26, 2014 6:00am-6:31am EDT
welcome to the nasdaq market. i'm melissa lee, call it the beat down, a number of rogue stocks posted great earnings. it didn't matter, check out, in fact, netflix, amazon and facebook posted better-than-expected results. could in signal the best of the soft rally? let's start off with the residents there. >> we call it skeptic. >> whatever you want to call it. >> three days, to defy gravity in the last leg of the bull rally. when you look at the results they reported, in a lot of ways, the headlines looked like they were inline. when you peel underneath, to me the price action we saw in those stocks after reporting headlines to most view eers at home, a lo were down 10% headed into this week. suspect changed.
the psychology of investors that don't want to own growth at any price at all. so it's a real problem. >> it's not psychology. these things were ludicrously priced to begin with. you know, when you take a look at earnings, we see a few earnings pieces, take a look at the sales number, a little few, a few number have actually beat the revenue number. it actually doesn't look that good. usually you see 10 trs, a bigger percentage beating earnings. that's not so good. take a look at what amazon said. they are forecasting the loss for the first quarter. so you have a profit for them, the last quarter that matches. this quarter, we're not going to make money, why would you be enthusiastic? >> melissa asked, is it over? it's certainly over from a momentum stocks. but mike really touches on something important here. >> that is about three weeks ago, we expected earnings growth for the s&p to be good. in that time it's only been three weeks that estimate has
come down 25% him people are lowering expectation, they are meeting or you need to do much better, pike hits on the important things for amazon, this quarter, the current quarter run, it was horrible for them an people were tired of that story. they're tired of it's going to grow and grow and grow. they're tired of that. >> i got the big one, though. when you think about, we know it's been tough in small cap land and high valuation, high growth lan. okay. the nasdaq is down 7% for the highs. you know what is not down a whole heck of a lot. s&p. april 14th, it is down 2%. if you look at that cart. >> that is a trend channel. it has not broken its move average since november of 2012 on the downside. we are overbought. if large cap stocks start to participate, we're going back to 1750. >> carter worth. i want to bring you in. in terms of this divergence
between the big cap technology and what's going on in the s&p 500. with key see this continue they rereign main in this trend channel? >> the numbereric s&p was virtually at all time highs, parts are collapsing. it's a part of the function out of growth into value. what happened after that initial phase, this is now seven weeks old. is the value starts to succumb. the growth doesn't get better, in principal. >> that itself way history shows this gets involved t. aggregate s&p goes lower as parts go lower. >> all right. so this is going to be a concern. if you are in the momentum names, or you are simply watching this, what is particularly concerning, you can explain amazon, the operating margins, but facebook is trading sharply. if that was a great quarter. yet look at where it is now, it's being taken out to the woods, just like any other stock. >> i see people love the growth
there. the company is doing a lot of things. but i'll pin point when this whole thing started. it was february 6th when twitter reported their first ever public company. it went down 24%. everything on the headline looked better, revenue, guidance, you know what didn't look good, growth, their engagem. that's when this all started. if you go back to that date the yelps, the pandoras, everything, they were all at all time highs. that's when the party ended. that's when it continues. i think you sell rallies in all these games. this is a tough one. next week on the 29th, they're going to report their second public quarter. listen, i can't imagine some of the user issues will be better. the company believes in long boarding, they don't know how to utes it. i don't buy that. i think the growth is stalled. i do like the company. to me, then you also have may 6th 465 million shares. i know a lot of pencers are
going to sell. the stock is still. it went public at 26. it's at 42 or so. it's still up a whole heck of a lot. if this party is over, people will definitely sell. it's up 42 and a quarter, i bought a put fly, it will sound confusing, it's simple. my professor over here will fix it up. it's a broken wing. it's the may exploration the may, 2040 put fly for $2 is. i sold two of the may 30 puts at 30 sents cents east. i bought a may 24 puts for five cents. maximum risk is $2. where i make money, i make $234r50ish8gs move the earnings event is 13%, it was 24% last time. this is an interesting trailed. >> these are the things i love about these broken wing flies we call it. you can make a directional bet. you make a bear bet to the downside. if it proceeds much further down
than you expected, you ends up losing money. it's hard to get the direction right. in this case, actually, you don't make quite as much. you make money no matter how far down the stork goes. those are the lower probability bets, so for my money, i think this is an intelligent bet for an implied move. so you want to sell a lot of premium. >> four weeks ago, awas in the wilderness hating twitter saying user growth had stalled. welcome to the club. >> listen, it's a neat product. i'm not certain it's a great company. i understand why he is buying that 24 strike. he is only paying a physical emfor it. that way he limits his risk. but you are only saving yourself 55 cents by turning this into a fly, just by the 40-30 spread, i think you are actually in much better shape. >> the truth is i wouldn't sell that 30 this time, it was 30 cents, your choice is, the amount of premium you will commit. will you not trade, boy a put. you lay into it. to me, i like making define risk
bets. i like to know what i will like where. >> a down day for the markets, of course, one area of strength was the big oil names. an option suggests more names. >> all right. so that's correct, melissa. traders are making bullish bets in big oil stocks. you think names like exxon, bp and chevron. in exxon mobile, more calls than puts. bp saw a three to one call, a bullish indicator there. in chevron, more than four calls are called for every single put option. a lot of the activity suggests traders are seeing gains coming later on in theier. interestingly enough here, exxon and chevron report earnings next week. as you know, melissa, energy has been a hot trade this month. so some interesting options action this time around in oil. back over to you. so to a question now, should you, john, be in on this bullish action? let's get to you, carter worth.
a couple weeks back, you said you love it set up well, do you still like it given the begins so far. >> the best performing factor for several weeks and months in a row. what's interesting here is the entire group represents 10.5% of the s&p. exxon, chevron and shum berge. slumberge. >> we havier to date, two year, five year, tenure. exxon is trailing the sector by a considerable margin and at some point, that is not sustainable. if we look at some comparative charts, we think you will see this visually. we have a year-to-date chart. each one will compare exxon relative to its sector of the s&p 500 sector, itself. here it is trailing here to date.
up basically 1% versus 16. again, exxon trailing. take a look. over five years, same situation and in some cases, if you look at the divergence, are you talking under performance by 50%. look at the long-term chart, which goes back here about 20 years. again, the top line is the sector, the bottom line is exxon, itself. we think the opportunity is to play exxon for catch-up. if the market does get in trouble. they are a defensive asset. have a look at exxon, if you will the cart, itself. notice where we are. we are back to the highs of december centering on about 100. after a sell-off in february, we are back to where we are. take a look at a five year. look at the trend line. look where we are now. see the arrow i've drawn, finally, look at the cart right now in relation to an all time high. this is quite a well defined
level. we are toying with the process of brakeing out over the tops of '07, '08. carter, how do you set up a trade on this? >> i think it's to go out, look out to okay. i will buy the 100 call space. it's trading in multiple, similar to this space. you are spending 3 poeven 5% until october '3. >> to me, we are in the fifthier, oil has gone ber jerk because of the geopolitical stuff. if global growth starts to slow this company, there is for the earnings growth here. sales growth is declining sales growth. >> they will continue to grow in coin. we will eek out 90 million barrels of usage. there is only about 2.5 million and most is accounted for
unplanned avenues. so i really don't see where you think there can be the bottom falling out of oil prices. >> right now, we are expecting a buck 88. 90 days ago, we expected $12 a share. this company should not have trouble meeting or beating what other companies are able to do. >> they missed last year. >> well, i didn't realize we were trading last quarter. i think i'm trading to trade this quarter. mike is making a good option trade because he's defining his risk and he's buying an position, a longer dated option, that's the way to get the math working for you. >> send us a tweet at nbc option, we will answer. scott is answering a question about how to make a bearish bet on bonds. 96, you will find great education material. exclusive trades and the latest options video. here's what's coming up next. . mike is going under cover to find the stock traders love
ahead of next week's earnings. he'll give you the edge. plus, what sector a savvy trader is hiding out in? we'll tell you when "options action" returns. ♪ . ♪ ♪ [ tires screech ] chewley's finds itself in a sticky situation today after recalling its new gum. [ male announcer ] stick it to the market before you get stuck. get the most extensive charting wherever you are with the mobile trader app from td ameritrade. i must begin my journey,
which will cause me to miss the end of the game. the x1 entertainment operating system lets your watch live tv anywhere. can i watch it in butterfly valley? sure. can i watch it in glimmering lake? yep. here, too. what about the dark castle? you call that defense?! come on! [ female announcer ] watch live tv anywhere. the x1 entertainment operating system, only from xfinity.
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work. so this is a few seg:we are calling earnings csi, our own mike coc- koe goes under cover. you look generally very serious, a departure from right now. unusual activity call your stock. >> it was mgm. they will be reporting on the 29th. what i happened to notice is the put-to-call ratio, you look at different things, people were trading more puts than calls by about 50 to 60% today than they usually do in this stock an both of the two most active options were puts. the one that caughtpy eye is the may 22 puts, people are buying those for 45 cents. they're obviously making bearish bets. they will expire the third friday in may amount i think looking at this, though, i would probably be inclined to take a higher probability bet. and i would probably look to do
the may 23, 21 put spread. you can spend 50 cents. you will make money before the other one breaks even. you will have to see the stocks move down materially for the others to get ahead. this is missing its move 11-and-a-half percent. >> that gets you down to 21 bucks or. so so you probably want to see the maximum profits there. >> this is the worst looking cart i seen in a long time. this is a classic head and shoulders. i love targeting that level, 21, 21. >> the option trade makes a lot of sense. he's not risking a lot of money to make a fair amount of money. >> carter, you have done your own investigation, dan is not a cart guy. are you the chart guy, what have you found? >> he has it quite right, actually. here is a chart of mgm. we have a shoulder, a head, a shoulder. a well defined neck line, the presumption is it breaks away here. it's not a good set up.
>> like i said. >> like you said. exactly. a good job by dan. >> yeah. >> the whole sector looks bad, winn resorts went from 250 -- >> he's negative on everything. >> this would be a good place to start. dressingary spending physical has to crack first. that's why something like this makes more sense than bearish on exxon. >> mgm not as fight as other names like winn and veck gas sam. >> up next, can old techs keep on chucking? is this the unlikely save for 2014? we' we'll tell you what our traders think when we come right back. ♪ .
cisco. ♪ the cisco kid was a friend of mine ♪ >> dan was a friend of the tech movement. just buying the stock 100 shares will set him back more than $2,000. >> oh, wow, that's a lot of money! >> sure it is. so to make his bullish bet, dan has bought the may 22 stwooik strike call for 55 cents. that's the most he can lose in the trade. to make money, his shares need to go above by more than the cost of the trade or above 2255 by may expiration. >> bea-utiful. >> but it gets even better. >> that call will increase if value faster than the shares will if they rise. meaning more money in dan's pocket. since the time of the trade, cisco shares have risen 8%, which is good burks not enough to make the trade a big winner. that's why options actions fans are asking, how can dan make
more cash? before we find out, let's see how well we have done. if dan had bought cisco back on march 21st. he'd be up 6%. that's not bad. he doubled his money. he bought it for 55 centsch dan can sell it for a buck 30 t. second his call is i want more cash. >> i think you have to start with the premise, do you want to stay long the calls. that sofbl a definable cat a list. i mean, to me, these guys get about 35% of sales overseas and in europe. i don't like the setup anymore. i sold them right around here for a double. i like getting doubles in options trade. that's one thing you do. the other thing is you sell the may 24 calls against it for about 30 cents, reduce about half your premium risk. lock in some of that spread you just made or you can actually sell half. those are three options. you got to decide whether you want to remain bullish on the thing. i don't think the quarter will
be great given what we have seen in this earnings cycle. you may get gym mickey stuff with apple. they got a lot of cash. to me, i think you take the trade and move on. >> you can do something else, you can roll out and up is another possibility. i also don't leak the idea of staying in this thing. are you in an option that's decaying rapidly, spreading it to mitigate some of that when you are not seeing that much conviction doesn't make them a whole lot. >> one thing i would not do. i would not sell the pay 23 call. i get into a situation where i can't lose money, but you also get yourself into a situation where all i can make is a buck. that's just not a situation i want to be in. this is a solid stand-up double. i don't want to turn my solid stand-up double into a trade that can only make a dlampl i like taking half off and let the other half go. >> that's a baseball term. >> thank you. >> i'm just saying. >> anyway, i want to bring this out in the old session in general. is this cisco specific?
how do you feel like hiding out? is it a bear? >> when we put the trade on about a month ago. i liked it. i thought this move in these large cap tech mates, they have a dividend deal. they have 30% of their marking cap in cash. the stock under performed. it was a catch-up play. it almost got to 24. we put it on when it was almost 22. i love it there i don't leak it here. >> you can see if apple one of the few tech names performing fairly well here, obviously, that's being supported if large part by the fact that they're doing the seven for one split. but those names actually don't have as much hazards to them underneath. i'd rather be long in there than in a mo mo. >> you sa the chart of cisco versus microsoft, microsoft now playing with that $40 level at being at 41. i don't see how microsoft goes higher than it does some sort of financial engineering like apple did an returns a bunch of money.
then they're only giving you your.back. >> coming up next the final call from the options desk. ♪ ♪ ♪ [ tires screech ] chewley's finds itself in a sticky situation today after recalling its new gum. [ male announcer ] stick it to the market before you get stuck. get the most extensive charting wherever you are with the mobile trader app from td ameritrade.
i must begin my journey, which will cause me to miss the end of the game. the x1 entertainment operating system lets your watch live tv anywhere. can i watch it in butterfly valley? sure. can i watch it in glimmering lake? yep. here, too. what about the dark castle? you call that defense?! come on! [ female announcer ] watch live tv anywhere.
all on thinkorswim from td ameritrade. ♪ time now for the final call t. last word from the options pits. carter. >> if you don't have exxon, get some. the presumption is the value growth rotation continues. it's a good bet. >> scott. >> traders have their faces ripped off trying to bet against bonds. this week's web extra is how to do it sensibly. >> sam. >> i would shorten the stock like twitter. that's scott over there. but i would look at the fine risk bet that you think define a range where your rick was unbelievable. >> pike. >> we point. ed out the s&p hasn't dropped as much as the rest of the market. that's good news for anybody interested in hedging. you use puts to protect your portfolio and put spreads. i think that's a good move here.
>> it looks like our time has expired. i'm melissa lee. for more "options action" check out the website and our daily segment "pence fast" every day around 5. ""mad money"" is up next. >> announcer: the following is a paid presentation for the power pressure cooker xl, brought to you by tristar. do you love sitting down to a big sunday dinner with the entire family? do you wish you could enjoy the taste of those all-day, slow-cooked, labor-intensive recipes without the time, the work, or the wait? well, now there's a new way to take grandma's favorite recipes and turn them into everyday family meals with just a push of a button and do it in a fraction of the time. how would you like to make a hearty pot roast with all the fixings done in 25 minutes... fall off the bone short ribs ready in 40 minutes... or how about chicken wings, going from rock-hard frozen to steaming hot in just 10 minutes?